Arizona Sen. Kyrsten Sinema backs Inflation Reduction Act

Yahoo Finance's Rick Newman breaks down the agreement Democrats and Sen. Kyrsten Sinema (D-AZ) reached on the Inflation Reduction Act and what's included in the climate and health care bill.

Video Transcript

JULIE HYMAN: Let's talk about also what's going on in Washington, DC for thing number two right now. Senator Kirsten Sinema has agreed to move forward with the sweeping Democratic legislation that targets climate change and healthcare. Sinema said her support came after her fellow Democrats agreed to remove a provision that closed the tax loophole for carried interest.

Yahoo Finance's Rick Newman is here. Rick, there were some suspense around this, whether she was going to support it. We still don't know the details of what exactly is going on, but it seems like the carried interest loophole is sticking around.

RICK NEWMAN: Yes, that's correct. So carried interest will remain the way it is. Apparently, it will come out of the so-called IRA, the Inflation Reduction Act. And instead, there apparently will be a new 1% excise tax on stock buybacks, which actually will raise considerably more revenue than eliminating the carried interest loophole.

The carried interest loophole, for all the sort of Sturm und Drang and outrage that it generates, cutting it would only have saved the government $1.4 billion per year. That's almost nothing in budget terms. And this new excise tax on stock buybacks would generate about $12 billion in revenue per year, so nearly, let's call it 10 times as much as the carried interest loophole.

So it might actually have a bigger impact on deficit reduction. And most of the other provisions will stay the way they are. So it now looks as if the Senate could pass this bill within the next few days. The house could follow. And this might become law by the end of the summer.

BRIAN SOZZI: Rick, how big a win is this for the president?

RICK NEWMAN: It's a very big win for Biden. So what he's going to get out of this is many of the green energy provisions that he's been championing since he ran for president in 2020. So there will be something like $370 billion in new tax breaks and incentives for green energy. That's the most Congress has ever dedicated toward green energy by a mile.

And just to remind people, a couple of other important things in this bill, stepped up funding for the IRS, so it can do better tax enforcement and go after people who are not paying all the tax they owe and narrow that so-called tax gap, which some people say could be as large as $1 trillion per year. So that will generate some extra revenue.

Medicare able to negotiate drug prices for some pharmaceuticals, and then extension of the Affordable Care Act subsidies that helped a couple of million people afford health insurance. So, really a big win for Biden, and let's remind everybody, one that kind of came out of nowhere because this legislation looked like it was never going to happen just a couple of weeks ago. And here it is, almost on the verge of passing.

JULIE HYMAN: Yeah, Joe Manchin changed his mind, and there you go. Bottom line for us, not just for what it means for the president, what it means for everybody, right? What does this do for the US economy, sort of writ large?

RICK NEWMAN: So there is an immense amount of hyperbole around this bill. You've got Democrats in favor of it and environmentalists in favor of it, saying it's going to do things like bring your energy costs down and have a huge impact on the economy. And while you've got critics saying, oh, my God, it's a terribly huge tax increase, it's going to tank the economy, this bill is going to do none of those things.

So there have been several analyses that, more or less, agree. First of all, it's called the Inflation Reduction Act. That is a misnomer. It's not really going to do anything to lower inflation. It's not going to raise inflation, but it's going to have basically no impact on inflation. So don't expect that. And it will be modestly good for overall economic growth. But we're talking less than 1% improvement in, let's say, GDP growth. And that is going to take years.

So, honestly, it's-- I think almost nobody's going to feel this in their ordinary life anytime soon. But it does get the ball rolling on green energy investments and other things like that. So for Biden, it's definitely going in the right direction.

BRIAN SOZZI: Unrelated, Rick-- I love that shirt. I love that color. Happy Friday to you, mate. I'll talk to you soon.

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